Reserve Bank cuts repo rate by 25 bps to 6.25%, first in nearly 5 years

Mumbai: For the first time in five years, the Reserve Bank of India cut repo rate as the central bank pivoted the policy stance to support a shuttering economy. As was widely expected, the 25 basis points rate cut to 6.25 per cent comes after the last rate reduction in May 2020. 

The new RBI Governor Sanjay Malhotra said the Monetary Policy Committee (MPC) unanimously decided to slash the policy rate. 

The repo rate cut comes within a week of Finance Minister Nirmala Sitharaman in Budget 2025-26 providing biggest-ever tax break to the middle class to boost consumption after the economy has slowed to its lowest pace since the pandemic.

"The RBI's repo rate cut complements recent budget measures designed to boost spending and stimulate economic growth. This monetary policy was imperative, especially after the recent 50-basis-point cut in the Cash Reserve Ratio (CRR), which has already injected significant liquidity into the banking system," Boman Irani, president of CREDAI told Reuters.

"While the current cut may have a limited direct impact, we anticipate that a further rate reduction in the next MPC meeting will provide stronger impetus to overall demand, accelerating housing sales, particularly in the mid-income and affordable segments," he said.

Upasana Bhardwaj, the chief economist of Kotak Mahindra Bank said apex bank has maintained a "neutral" stance is completely in line with the expectations. "The softening growth and inflation outlook has provided room to monetary easing. The RBI will need to monitor liquidity conditions more closely to ensure liquidity stance remains in sync with the policy stance," she said.

The rate increase cycle was paused in April 2023 after six consecutive rate hikes, aggregating to 250 basis points since May 2022. The last rate hike was done by RBI in February 2023.

Post Budget, the Finance Ministry made a case for rate cut by saying that fiscal and monetary policy should work in tandem.

It was widely seen a nudge to the RBI to cut rate after the blockbuster income-tax rebate announcement.